HONG KONG—U.S. President Donald Trump’s accusations of currency manipulation appear to be reaching an audience he may not have primarily intended.

Mr. Trump vowed on the campaign trail to revive American manufacturing, in part by taking a hard line on Chinese trade practices and labeling the country a currency manipulator. Since taking office, the president has accused both China and Japan of consistently devaluing their currencies,…

Still, some smaller economies look like they are taking notice, notably Taiwan and Switzerland. The U.S. Treasury found in October that both had engaged in persistent, one-way currency intervention, essentially by buying foreign currencies like the U.S. dollar and selling their own to maintain weak exchange rates.

Analysts say the central banks of Switzerland and Taiwan are now stepping back from those activities, perhaps to avoid closer scrutiny from the Trump administration. The upshot: The Swiss franc has advanced nearly 2% against the U.S. dollar this year, while the new Taiwan dollar has surged 5.3%. Both have outperformed the euro and yen since the U.S. election in early November.

Taiwan’s central bank bought $500 million in foreign currencies in the fourth quarter, well below its quarterly average of more than $3 billion since 2012, according to Khoon Goh , head of Asia research at ANZ in Singapore, who said he suspects it is stepping back from “currency-smoothing operations.” The central bank said it doesn’t comment on currency policy.

For the first nine months of last year, the Swiss National Bank /quotes/zigman/1379668/delayedCH:SNBN+0.12%intervened heavily in currency markets to slow the franc’s rise, spending an amount roughly equivalent to its current-account surplus for the period, J.P. Morgan/quotes/zigman/272085/compositeJPM-0.76%analysts note. Over the following four months, the scale dropped to around two-thirds of the surplus.

“It’s not an entirely fanciful suggestion that the SNB might be tapering intervention in order to the guard against the risk of being cited by the U.S. Treasury as a currency manipulator,” the analysts wrote in a note.

The Swiss National Bank declined to comment.

For the U.S. to label an economy a currency manipulator under the current law, it must have a large trade surplus with the U.S. and a hefty current-account surplus and persistently intervene in the currency in one direction. As of October, no economies met all three criteria.

Recent comments from officials in South Korea, which the Treasury has flagged for its hefty trade surplus with the U.S. and its current-account surplus, suggest they’re similarly eager to avoid U.S. ire, says Govinda Finn , senior analyst at Standard Life Investments in Edinburgh. The Korean won has surged 5.2% against the dollar this year.

But any gains in the Korean and Taiwanese currencies due to U.S. political pressure may not last, he said: “On a longer-term horizon, there’s a pretty strong case to say both of those currencies can and will weaken as the authorities look to support their economies.”

“It basically gives ammunition to the Trump administration that the yen is too cheap.”

Japan’s current account surplus hit 20.65 trillion yen ($184 billion) last year, the highest level since a record surplus of 25 trillion yen in 2007, the finance ministry said.

The indicator includes trade both in goods and services as well as tourism and returns on foreign investment.

Data released by the U.S. Commerce Department on Tuesday showed the United States ran its second largest trade deficit with Japan, after China.

On Wednesday, Japan’s top government spokesman Yoshihide Suga commented on the issue, saying the allies’ economics relations were “maturing”, and noted the country was a major U.S. job creator.

The comments come after Trump slammed car giant Toyota over a planned vehicle factory in Mexico.

Japan’s 2016 current account figure grew 26% from 2015 as it posted the first annual surplus in goods and services trade since the 2011 Fukushima nuclear disaster sent the country’s energy import bills soaring.

Energy prices have since fallen while record tourism has boosted the services sector.

Financial income, including Japanese firms’ buyouts abroad and investment in bonds and other securities, also rose by more than one third from the previous year.

Japan’s Prime Minister Shinzo Abe attends a Northern Territories Day rally to call on Russia to return a group of islands, known as the Northern Territories in Japan and the Southern Kuriles in Russia, in Tokyo, Japan February 7, 2017. REUTERS/Issei Kato

Prime Minister Shinzo Abe heads to Washington on Thursday hoping promises to help create U.S. jobs and bolster Japan’s military will persuade U.S. President Donald Trump to turn down the heat on trade and currency and stand by the decades-old alliance.

Japanese officials have been soothed by security assurances from Defense Secretary Jim Mattis and others. But they worry Trump may go off script when the two leaders meet, first for a summit in Washington on Friday and then for a round of golf near the “Winter White House” in Florida.

Some in Tokyo even worry that Trump, a global businessman and author of “The Art of the Deal”, might eventually make some sort of pact with rival China that leaves Japan out in the cold.

“What we want to know is Mr. Trump’s attitude towards China,” said Yukio Okamoto, a former Japanese diplomat with ties to the government. “If it becomes only an economic one, then a deal might be made at some point without the consideration of security issues in the region.”

Japanese politicians are also concerned that Abe might make hard-to-keep promises when the two play a round of golf that has echoes of one between Abe’s prime minister grandfather, Nobusuke Kishi, and President Dwight Eisenhower in 1957.

U.S. newspapers then dubbed the golf game a “triumph of diplomacy” between the former World War Two enemies. Three years later, Kishi had to resign because of a public furor over the 1960 U.S.-Japan security pact.

“The symbolism of playing golf is very important to the Japanese,” said Dennis Wilder, a former National Security Council official. “Abe is very proud of his grandfather and has worked hard to fulfill his unrealized dream of building a full strategic partnership with Washington.”

CARS, TRAINS AND SCREENS

During his election campaign, Trump complained that Tokyo and Seoul were not sharing enough of the cost of the U.S. security umbrella.

Trump has also lumped Japan with China and Mexico as big contributors to the U.S. trade deficit, targeted its auto trade as “unfair” and accused Tokyo of using monetary policy to devalue its currency to boost exports.

Addressing such concerns, Chief Cabinet Secretary Yoshide Suga said on Wednesday Tokyo’s share of America’s trade deficit had declined from historic highs and Japanese firms have invested in the U.S. significantly.

Japan posted a trade surplus of 6.8 trillion yen with the United States last year, down 4.6 percent from 2015, but U.S.-bound car shipments rose for a second straight year, ministry of finance data showed month.

Abe, who will be accompanied by Finance Minister Taro Aso and Foreign Minister Fumio Kishida, will bring a package of steps Tokyo says could create 700,000 U.S. jobs through private-public investment in infrastructure such as high-speed trains, government sources say.

Speculation is also simmering that Japanese manufacturers like Toyota Motor Corp,, whose president Akio Toyoda met Abe last week, could time announcements about investment – either already planned or new – to coincide with the summit.

Japanese display maker Sharp Corp may start building a $7 billion plant in the United States this year, a person with knowledge of the plan said on Wednesday.

Hoping to update what Japan believes is Trump’s outdated image of Japan forged in decades-old trade wars, Abe will also be armed with data, showing, for example, that Japanese firms are the biggest direct foreign investor and foreign employer in the United States second only to Britain.

BILATERAL TRADE DEAL

Trump, who has abandoned the 12-nation Trans-Pacific Partnership (TPP) trade pact championed by his predecessor Barack Obama, wants to open talks on a bilateral free trade deal with Tokyo. He also wants to renegotiate the North American Free Trade Agreement (NAFTA) binding Mexico, the United States and Canada, the basis of many Japanese firms’ investment plans.

Abe prefers multilateral trade deals, but has left the door open to talks on a bilateral pact – despite misgivings by some officials that Tokyo would come under intense pressure to open further politically sensitive sectors such as agriculture, while gaining scant economic benefits.

“I don’t think Mr. Abe will say ‘no’ to the bilateral option but I don’t think he will say it is a good idea, either,” one Japanese official said.

Financial markets are keen to see whether Trump repeats his criticism of Japan for using money supply to weaken the yen to boost exports. Japanese sources have made clear Tokyo will push back on any attempts to bind its hands on a hyper-easy monetary policy central to “Abenomics” growth prescriptions.

ALSO IN WORLD NEWS

Abe will be eager for Trump to repeat assurances that his administration will adhere to Washington’s commitment to defend disputed East China Sea islands under Japanese control but claimed also by China. The islands are called the Senkaku in Japan and the Diaoyu in China.

Abe is likely to reassure Trump that Japan is willing to play a bigger regional defense role and beef up its military capabilities. A pledge to boost defense spending, however, could be contentious at home in view of Japan’s huge public debt.

Some experts cautioned that too subservient a response by Abe, such as a government-inspired jobs creation package, risks confirming Trump’s view that old-style Japan bashing works.

“It’s a very difficult line to walk to satisfy Trump at the same time not giving the impression that it’s Japan Inc all over again,” said Jun Okumura, a former trade negotiator who is a visiting scholar at the Meiji Institute for Global Affairs.

Others, though, said Japan has little choice.

As the Japanese official put it, “We have no choice but to ride with the United States, whoever the president is.”

(Additional reporting by Matt Spetalnick in Washington and Tetsushi Kajimoto and Takashi Umekawa in Tokyo; Editing by Bill Tarrant)

U.S. President Donald Trump speaks during a luncheon at the Republican Member Retreat January 26, 2017 in Philadelphia, Pennsylvania. Alex Wong | Getty Images

TOKYO — Talk of a possible 20 percent tax on U.S. imports from Mexico is raising eyebrows in Asia, where exports to the U.S. drive growth in many economies.

Japanese officials said Friday they hoped to soon hold talks on trade with U.S. officials. Finance Minister Taro Aso said the Japanese side should “thoroughly explain” how Japanese companies have been contributing to American society, including creating jobs.

“It would be important to exchange opinions to accurately convey the reality and establish a steady relationship,” Aso told reporters.

President Donald Trump’s press secretary Sean Spicer said the 20 percent tax was among several options to finance building a wall along the U.S. southern border, but no decision has been made.

Mexican President Enrique Pena Nieto (PAYN’-yuh nee-EH’-toh) scrapped a scheduled trip to Washington next week over the issue. He has flatly rejected Trump’s assertion that Mexico will pay for the wall on its border.

China’s official Xinhua News Agency reported that Trump was considering the 20 percent tariffs without any editorial comment. However, the report cited unnamed analysts saying Trump would have to withdraw the U.S. from the North American Free Trade Agreement, or NAFTA, to be able to impose such a tax. Trump has said he wants to renegotiate NAFTA.

Though he did not refer directly to Trump, in remarks marking the eve of the lunar new year on Friday, Premier Li Keqiang said, “Above all, we remain convinced that economic openness serves everyone better, at home and abroad.

“The world is a community of shared destiny. It’s far preferable for countries to trade goods and services and bond through investment partnerships than to trade barbs and build barriers. Should differences arise, it behooves us all to discuss them with respect and a keen sense of equality,” he said.

Japan’s chief government spokesman refused comment on the spat, but said Tokyo would watch for any impact on Japanese companies.

A steep tariff on exports from Mexico to the U.S. could have a chilling effect on manufacturers like Toyota Motor Corp., which like nearly all other automakers builds small cars in Mexico to take advantage of its lower wages.

Along with other Japanese automakers, Toyota employs thousands of people at factories in the U.S. It also is planning to build a plant in Mexico to make the popular Corolla subcompact.

Opposition parties in Japan have lambasted Prime Minister Shinzo Abe over Trump’s decision to pull out of a Pacific Rim trade initiative, the Trans-Pacific Partnership, that former President Barack Obama had made the centerpiece of efforts to strengthen U.S. economic ties in the region.

Abe said Friday he believed Japan could work with the U.S. on a bilateral trade deal, the type of arrangement Trump says he prefers, while also pursuing wider trade arrangements like the TPP.

After Trumps announcement of the U.S. withdrawal from the TPP, Abe and leaders of some of the 11 remaining member countries said they hoped to push ahead on the trade pact and possibly to woo the U.S. back.

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Associated Press writer Mari Yamaguchi contributed to this report.

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White House says Mexico border wall might be funded by tax on imports

The Washington Post

MEXICO CITY — A deep rift opened Thursday between the United States and its southern neighbor as the Trump administration pressed forward with a plan for a giant border wall and insisted that Mexico would pay for it, possibly through a U.S. tax on imports.

President Enrique Peña Nieto on Thursday called off a trip to Washington after emphasizing that Mexico would not finance the wall. Hours later, Trump’s press secretary, Sean Spicer, said the border barrier would be funded by a 20 percent import tax on goods from Mexico.

Spicer did not provide details of how the policy would work. Later, he appeared to backtrack, telling reporters that the tax was “one idea” to pay for the wall and that his intent was not to “roll out” a new policy. He said it could be part of a broader import tax plan backed by some House Republicans.

The White House on Thursday floated the idea of imposing a 20 percent tax on goods from Mexico to pay for a wall at the southern U.S. border, sending the peso tumbling and deepening a crisis between the two neighbors.

Mexican President Enrique Pena Nieto announced on Twitter around midday on Thursday that he was scrapping a planned trip to meet with U.S. President Donald Trump, who has repeatedly demanded that Mexico pay for a wall on the U.S. border.

Later in the day, White House spokesman Sean Spicer sent the Mexican peso falling to its low for the day when he told reporters that Trump wanted a 20 percent tax on Mexican imports to pay for construction of the wall.

Spicer gave few details, but his comments resembled an existing idea, known as a border adjustment tax, that the Republican-led U.S. House of Representatives is considering as part of a broad tax overhaul.

The White House said later its proposal was in the early stages. Asked if Trump favored a border adjustment tax, White House Chief of Staff Reince Priebus said such a tax would be “one way” of paying for the border wall.

“It’s a buffet of options,” he said.

Mexico import tax ‘not a good situation’: AAFA 6 Hours Ago | 00:55

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The plan being weighed by House Republicans would exempt export revenues from taxation but impose a 20 percent tax on imported goods, a significant change from current U.S. policy.

“If you tax exports from Mexico into the United States, you’re going to make things ranging from avocados to appliances to flat-screen TVs, you’re going to make them more expensive,” Mexican Foreign Minister Luis Videgaray told reporters at the Mexican Embassy in Washington on Thursday night.

Countries like Mexico would not pay such taxes directly.

Companies would face the tax if they import products made there into the United States, potentially raising prices for American consumers.

The idea is unpopular with retailers and businesses that sell imported goods in the United States. It also has met opposition from some lawmakers worried about the impact on U.S. consumers.

Trump is strong-arming Mexico: Expert 7 Hours Ago | 01:40

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Trump himself appeared to pan the idea in a Wall Street Journal interview last week, saying the House border adjustment provision was “too complicated.”

Even after Trump’s comments, congressional Republicans have continued to discuss the issue with White House officials in an effort to bring them on board with the idea.

Rift with Mexico

Trump, who visited Republican lawmakers at their policy retreat in Philadelphia, told them he would use tax reform legislation to pay for the border wall.

“We’re working on a tax reform bill that will reduce our trade deficits, increase American exports and will generate revenue from Mexico that will pay for the wall if we decide to go that route,” he said.

Trump, who took office last week, views the wall, a major promise during his election campaign, as part of a package of measures to curb illegal immigration. Mexico has long insisted it will not heed Trump’s demands to pay for the construction project.

He signed an executive order for construction of the wall on Wednesday. The move provoked outrage in Mexico. A planned meeting between Videgaray and U.S. Homeland Security Secretary John Kelly was canceled, a department spokeswoman said.

Videgaray said Mexico would work with Trump but that paying for the wall was out of the question.

“There are things that go beyond negotiation,” he said.

“This is about our dignity and our pride.”

Pena Nieto, who had been under pressure to cancel the summit, tweeted on Thursday: “We have informed the White House that I will not attend the working meeting planned for next Tuesday with @POTUS.”

Trump had tweeted earlier that it would be better for the Mexican leader not to come if Mexico would not pay for the wall.

He said later the meeting was canceled by mutual agreement.

Relations have been frayed since Trump launched his presidential campaign in 2015, characterizing Mexican immigrants as murderers and rapists. His trade rhetoric has hit the Mexican economy, causing consumers to rein in spending and foreign businesses to wait on new investments, according to the International Monetary Fund.

For months, though his ratings hovered near the single digits, the worst of any Mexican president in recent history, Mr. Peña Nieto resisted the temptation to saber-rattle, arguing that the relationship with America was simply too important to fall prey to a war of words.

He wanted to give diplomacy one last try. By Thursday morning, the effort had officially failed.

In a blitz of Twitter messages from the two presidents, fired off over the past two days, the first full-blown foreign policy standoff of the Trump administration has taken shape.

Zhou Xiaochuan, the governor of the People’s Bank of China, stressed on the sidelines of the G20 meeting in Chengdu on Sunday that the yuan will remain stable against a basket of currencies. File photo: AP

The value of the Chinese yuan will remain stable against a basket of currencies, China’s central bank governor Zhou Xiaochuan told the South China Morning Post on the sidelines of the G20 meeting of finance ministers and central bankers in Chengdu on Sunday.

Zhou’s comments came as the world’s major economic policymakers are set to pledge again that they will stay away from “competitive currency devaluations” as part of a global coordinated response to weak economic growth and financial market turmoil.

“We are sticking with a managed floating exchange rate system, and that’s a policy stance we have been reiterating for years,” Zhou said in a brief interview in the hallway of the venue of the G20 meeting, in response to a question whether the yuan would keep depreciating.

When asked if the value of the yuan would be kept stable against a basket of currencies, Zhou said: “In my view, that’s the line for all people to understand [about China’s yuan policy].”

While in Chengdu the governor of the People’s Bank of China attended a Financial Stability Board meeting before the G20 talks, and also held closed-door talks with Lew and Philip Hammond, Britain’s new Chancellor of the Exchequer.

The world’s major financial officials are meeting in Chengdu, the capital of China’s southwestern province of Sichuan, for a two-day meeting to address the global weakness in economic growth and uncertainties as a result of the British referendum in June in which the electorate voted to leave the European Union.

So far in Chengdu Zhou has not given any public speeches or held any press conferences.

The commitment of China’s central bank to a stable yuan against a basket of currencies was tested early last week when there was an apparent weakening of the yuan against the US dollar and a group of other currencies. But the yuan’s exchange rate quickly strengthened on Thursday and Friday.

“The yuan had been kept stable against a basket of currencies for quite a long period of time, but recently it had weakened, so there might be some early suspicion in the international community,” Ding Shuang, the chief China economist at Standard Chartered in Hong Kong, said on the eve of the G20 meeting.

“The central bank prefers stability,” Ding said. “It had increased intervention in the days before the G20 meeting in Chengdu.”

Zhou Hao, an economist at Commerzbank in Singapore, said: “China’s central bank won’t give up the 6.7 [per cent dollar/yuan exchange rate] level very easily. It would be quite risky if the level was given up easily – if the yuan weakens to 6.8 per cent against the dollar, it would overthrow many previous beliefs.”

Zhao Yang, the chief China economist at Nomura in Hong Kong, said.“Over a long-term perspective, there are depreciation pressures on the yuan against the dollar, but it’s another matter whether the yuan will depreciate against a basket of currencies – the euro and yen are quite uncertain.”

Downward pressure on the yuan had come from China’s economic slowdown and capital outflow pressures over next two or three years, Zhao said.

“The central bank has done a quite good job during the past half year as it has been allowing yuan depreciation in a managed and controllable way,” Zhao said. “There’s no panic, and there’s an agreed bottom line now that there won’t be any one-off yuan revaluation.”

Beijing’s exchange-rate strategies—against the U.S. dollar and a basket of 13 currencies—still a source of uncertainty

China’s yuan has fallen about 3% against the dollar since the beginning of 2016, and nearly 6% against a basket of 13 currencies in the same period.PHOTO: REUTERS

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By LINGLING WEI
The Wall Street Journal

July 24, 2016 6:50 a.m. ET

CHENGDU, China—Beijing has managed to let the yuan slide against the U.S. dollar without sparking strong protests from its trading partners this year. Now the Chinese currency’s bigger depreciation against a broader group of currencies is increasingly getting attention.

At the two-day meeting of Group of 20 finance chiefs over the weekend, held in this southwestern Chinese city, officials from some of China’s major trading rivals expressed concern over the yuan’s declines this year. It has not only fallen about 3% against the dollar since the beginning of 2016, but also nearly 6% against a basket of 13 currencies that include the dollar, the euro and the yen in the same period.

Speaking to reporters Saturday, Japanese Finance Minister Taro Aso said he had told the G-20 gathering to “pay attention to” the future direction of the yuan as well as the overall Chinese economy. Other Western officials said privately that they had cautioned China not to weaken the yuan broadly.

The remarks show China’s exchange-rate regime remains a source of uncertainty for global policy makers and investors. Two rounds of yuan devaluation in the past year triggered panic selling in markets world-wide and exacerbated the flow of money out of China. China’s central bank has improved communication about its yuan-pricing mechanism, which has eased nervousness about the latest bout of yuan depreciation that started in late May.

Economists have called on China to let the yuan weaken further as the country’s economy slows, but the People’s Bank of China has had to take care that such weakening is gradual enough that it doesn’t speed up capital outflows. The U.K.’s June 23 vote to leave the European Union helped speed up the yuan’s descent as the central bank took advantage of the surging dollar to let some air out of the yuan. It let the yuan weaken 1.6% against the dollar and 1% against the basket in the first two weeks following the British decision. Last week, the central bank moved to guide the yuan higher against the greenback and kept it largely stable against the currency group—just in time for this weekend’s G-20 meeting.
Beijing’s exchange-rate maneuvering this year has largely been driven by the dollar. When the greenback was weak, the PBOC mainly anchored the yuan to the dollar and let it fall against the basket. Conversely, when the dollar advances, it lets the yuan weaken against the dollar while keeping it largely stable against the basket. So far this year, the dollar has weakened for longer than it has strengthened, resulting in a weaker yuan versus the basket than versus the dollar.

Chi Lo, China economist at BNP Paribas Investment Partners, the asset-management arm of the Paris-based bank, said he still believes the Chinese central bank wants “stability” for the yuan as continued weakening of the currency could renew capital outflows.

Already, analysts at Goldman Sachs Group Inc. estimate that outflows jumped to $49 billion last month from $25 billion in May as a result of the falling yuan.

“What we don’t know is whether the PBOC wants a stable yuan-dollar rate or a stable trade-weighted exchange rate” as measured by the yuan’s value against the basket, Mr. Losaid.

Part of the confusion stems from the central bank’s own effort since late last year to reorient investors’ attention toward the yuan’s rate versus the basket, and away from its value just against the dollar. That attempt has been widely seen as the PBOC laying the ground for allowing more yuan depreciation against the greenback. In reality, however, the yuan so far this year has weakened more against the basket than against the dollar.

“The combination of a monthly trade surplus of about $50 billion this year and the depreciation of the yuan will surely raise some concerns among China’s trading partners,” said China economist Larry Hu at Macquarie Group Ltd., a Sydney-based investment bank. Pressure from the rest of the world, on top of the declines the yuan has experienced this year means, Mr. Hu said, there is “very limited room” for further yuan depreciation against the basket for the rest of the year.

At the conclusion of the G-20 meeting Sunday, which was chaired by China, the group reaffirmed its previous pledge not to engage in beggar-thy-neighbor devaluations. In a statement, PBOC Gov. Zhou Xiaochuan said the yuan’s exchange rate against the currency basket is being kept “basically stable,” which he said has further strengthened “the market confidence” in the Chinese currency.

Meanwhile, a senior U.S. Treasury official noted Beijing has intervened recently to prevent the yuan from falling further, actions the U.S. welcomes, describing them as not the kind of intervention “that we would see as being designed to gain an unfair advantage.”

But that is not to say Washington is done pushing Beijing to continue its exchange-rate reform. “The fact that they don’t have full transparency on their intervention makes it challenging to have 100% confidence,” the official said.

SENDAI, JAPAN (BLOOMBERG) – Finance chiefs from the world’s biggest developed economies meeting in Japan underscored concerns that global growth is flagging and reaffirmed a pledge not to deliberately weaken their currencies, even as Japan again warned on the yen’s surge.

At the end of two days of talks, Group of Seven central bank governors and finance ministers highlighted risks from terrorism, refugee flows, political conflicts and the potential for a British exit from the European Union.

While officials agreed not to target currencies to stoke growth and warned of the negative consequences from disorderly moves in exchanges rates, host Japan repeated a stance that recent trading in the yen has been one sided and speculative.

Comments on the yen’s moves by Finance Minister Taro Aso hint at a growing frustration inside Japan’s government about the impact on exporters after the currency surged 9 per cent this year, spurring speculation that the government may intervene.

Mr Aso raised the issued in a meeting with United States Treasury Secretary Jacob Lew on Saturday.

“I told him that one-sided, abrupt, and speculative moves were seen in the FX market recently, and abrupt moves in the currency market are undesirable and the stability of currencies is important,” Mr Aso said to reporters.

YEN TENSIO NS

Tensions over the yen were evident over the course of the meetings, which were held at a hot springs resort in the country’s north. As Japan warned about the impact of disorderly trading, Lew repeated his view that the yen’s movement hasn’t been overly volatile.

“It’s a pretty high bar to have disorderly conditions,” Mr Lew told reporters.

To be sure, Japan remains a long way from its first intervention since 2011, when the G-7 sanctioned selling the yen to aid the country’s recovery after a devastating earthquake, tsunami and nuclear meltdown. A strengthening dollar amid rising bets that the US Federal Reserve may lift interest rates over coming moths is helping ease pressure on Japan’s exporters.

Mr Aso also made it clear that the difference of opinion with the US is manageable. “They have an election and we have an election and we both have TPP talks,” Mr Aso said. “There are various things on our plates and we of course have to say various things as that’s our jobs.”

BEING VOCAL

Still, by choosing to be so vocal on the yen, Mr Aso is both attempting to jawbone the currency lower and put a marker down in the event the currency again starts to appreciate rapidly.

“There’s no sign that Japan and the U.S. will move closer together,” said Mr Hiroaki Muto, chief economist at Tokai Tokyo Research Centre.

Beyond currencies, the G-7 didn’t agree on details of how best to revive the world’s economy. The group said central banks, governments and structural reforms should be involved but stopped short of any coordinated push or an agreed to-do list.

“There was agreement that at the end of the day it’s the mix between monetary policy, fiscal policy and structural reforms that matters,” said Bundesbank President Jens Weidmann.

DIVERGENT VIEWS

The position emerged that country-specific conditions need to be taken into account. This may reflect the divergent views among the G-7 on whether to unleash extra government spending, as advocated by Japan and Canada, but opposed by Germany. A summary of the meeting released by Japan said it’s important to implement fiscal strategy flexibly while putting debt as a share of gross domestic product on a sustainable path.

“It is both disappointing and unexpected that there is a lack of ideas and will to secure new sources of global growth,” said Mr Douglas Paal, a vice-president at the Carnegie Endowment for International Peace.

As planned, no communique was issued after the event. Japan said its summary didn’t purport to be an official consensus.

The G-7 agreed that if British voters decide in a June referendum to leave the European Union, it would be the wrong decision and hurt the country’s economic growth. Officials also signaled confidence that the European Union will reach a deal with Greece at the meeting of his counterparts next week.

TERRORIST FINANCING

Other discussions included tackling cross border tax evasion and an agreement on new ways to combat terrorist financing.

The talks took place against the background of slowing global growth and continuing concerns about the health of Japan’s economy, the world’s third largest. It dodged recession in the first quarter on the back of government spending.

Falling prices and low growth across much of the developed world has stoked concerns that governments aren’t doing enough to stimulate demand as the influence of monetary policy wanes.

The meeting brought together finance ministers and central bank governors from Britain, Canada, Italy, France, Germany, Japan and the US, plus leaders from the International Monetary Fund, World Bank and European Union.

Finance ministers and central bank chiefs end two-day meeting without an agreement on a more balanced policy mix

Taro Aso, Japan’s deputy prime minister and finance minister, listens during a news conference following the Group of Seven meeting in Sendai, Japan, on Saturday.PHOTO: BLOOMBERG NEWS

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By TAKASHI NAKAMICHI and MITSURU OBE
The Wall Street Journal

May 21, 2016 8:20 a.m. ET

SENDAI, Japan—Differences between the U.S. and Japan over the yen surfaced again Saturday, underscoring the difficulty the world’s leading economies face as they try to coordinate efforts to stoke global growth.

Group of Seven finance ministers and central bank chiefs ended a two-day meeting without an agreement on a more balanced policy mix, including additional, possibly coordinated fiscal stimulus, and aligning divergent monetary policies.

Policy makers have stressed in recent months that, given risks to the global economy, fiscal stimulus and structural reforms should be used to supplement the extraordinary monetary easing being conducted by central banks in the U.S., Europe and Japan. They have also reiterated that countries should avoid resorting to competitive currency devaluations to generate growth at the expense of other nations.

Tokyo and Washington clashed over whether Japan should be allowed to arrest the yen’s recent rise. A sharply weaker yen, catalyzed by the Bank of Japan’s easing policies, had been a key element of Prime Minister Shinzo Abe’s growth program, but the currency has rebounded moderately since January.

apanese Finance Minister Taro Aso said Saturday that he expressed concern about what he termed excessive movements in the yen to his counterpart, U.S. Treasury Secretary Jack Lew, on the sidelines of the meeting. Mr. Aso said he told Mr. Lew that “one-sided, speculative trades” have been seen in the market, something that Tokyo considers undesirable.
“The movement seen over the past several weeks can’t be described as ‘orderly,’” Mr. Aso said at a news conference, reflecting his position that intervention may be warranted.

Japan will accept changes in the value of the yen as long as they are gradual, he added.

U.S. officials have disagreed with Japan’s assessment of the market, saying the currency moves have been orderly.

Mr. Lew, speaking at a news conference, stressed the importance of commitments among G-7 and Group of 20 nations not to intervene in currency markets.
“The conversations we’ve had here were consistent with the value of having frank and direct discussions on difficult subjects,” he said. “That’s a good thing for us to continue to do.”

A senior U.S. Treasury official said it would take the kind of surging strength seen in the yen around the time of a major earthquake and tsunami in northeastern Japan in 2011 for Washington to endorse intervention.

“You have to distinguish between the kind of crisis that was present in those circumstances from the kinds of fluctuations in the market that just happened,” the official said.

The U.S. joined Japan and the other G-7 nations in March 2011 to undertake joint intervention to drive the yen lower.

Mr. Aso said the yen’s exchange rate versus the U.S. dollar had become politicized in the U.S. because of the presidential campaign there and debate over the ratification of the Trans-Pacific Partnership trade agreement.

“It is important to continue dialogue and avoid getting emotional over the issue,” Mr. Aso said.

The comments follow a series of verbal jabs between the two countries over the yen. Mr. Aso recently threatened intervention to blunt the yen’s rise, while the U.S. has repeatedly warned against it.

The finance and central bank chiefs found common ground in their concern about the state of the global economy.

“What we know is that we have inadequate demand overall globally,” the U.S. official said. “In order to grow global demand, it’s going to require investment and spending.”

That sentiment was echoed by Japan. “The only way to grow the economy when private consumption and investment are stalling is through government expenditures,” Mr. Aso said.

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Within G-7, many countries support the need for significant infrastructure investment as a way to create short-term demand and increase productivity in the longer term.

But no concrete agreement was reached on increased government spending, reflecting divergent views among countries such as Germany.

Jürg Weissgerber, a spokesman for Germany’s finance ministry, stressed the need for a balanced policy approach, noting that the importance of structural reforms was recently highlighted by G-20 meetings in Shanghai and Washington.

“In terms of fiscal policy, improving the structure or quality of public spending is much more important for growth than just raising the amount of spending,” Mr. Weissgerber said in an email. “We have too much debt world-wide—both public and private—and thus need to bring down debt levels and deficits. This will help to improve the resilience of economies much more than any short-term fiscal stimulus financed by borrowing.”

In a compromise, G-7 has left individual countries to devise their own policy programs to contribute to stronger global growth.

In line with its recent practice, the group issued no joint written statement. Its discussion will feed into a final communiqué of the G-7 leaders when they hold a summit meeting scheduled to take place in Ise-Shima, Japan, next Thursday and Friday.

Write to Takashi Nakamichi at takashi.nakamichi@wsj.com and Mitsuru Obe at mitsuru.obe@wsj.com

Zhou Xiaochuan, governor of China’s central bank, couldn’t stop repeating to a G-20 gathering that a bubble in his country had “burst.”

It came up about three times in his explanation Friday of what is going on with China’s stock market, according to a Japanese finance ministry official. When asked by a reporter if Zhou was talking about a bubble, Japanese Finance Minister Taro Aso was unequivocal: “What else bursts?”

A dissection of the slowdown of the world’s second-largest economy and talk about the equity rout which erased $5 trillion of value was a focal point at the meeting of global policy makers in Ankara. That wasn’t enough for Aso, who said that the discussions hadn’t been constructive.

Chinese stocks have plunged almost 40 percent since a June peak, triggering unprecedented intervention from the authorities. The central bank cut rates for the fifth time since November last month and lowered the amount of cash banks must set aside, falling back on its major levers to support equity prices and the slowing economy.

It was China, rather than the timing of an interest-rate increase by the Federal Reserve, that dominated the discussion, according to the Japanese official, with many people commenting that China’s sluggish economic performance is a risk to the global economy and especially to emerging-market nations.

“It’s clear there are problems in the Chinese market, and at today’s G-20 meeting, many people other than myself also expressed that opinion,” Aso said after a meeting of finance chiefs and central bank governors.

The PBOC shocked global markets by allowing the biggest yuan depreciation in two decades on Aug. 11, when it changed the exchange-rate mechanism to give markets a bigger role in setting the currency’s level. That historic move would not get a mention in the communique, according to the Japanese official, who asked not to be named, citing ministry policy.

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Newsmax

Global finance chiefs sought to contain tensions over currency movements with China suggesting its August devaluation won’t be repeated any time soon and Japan labeling the Chinese unhelpful.

Zhou Xiaochuan, governor of China’s central bank, told a meeting of Group of 20 finance ministers in Ankara that a stock- market bubble in his country had “burst,” according to Japan’s Taro Aso. Another official present at the talks said China had presented the country’s situation as a new normal.

“It wasn’t enough,” Aso told reporters. “They may have tried to be constructive, but they weren’t detailed enough.”

China is on the defensive as its slowing economy and market turbulence send shock waves through emerging markets just as the U.S. is preparing to raise interest rates. With the MSCI emerging market index down 18 percent so far this year, a draft communique prepared before the meeting cited “recent volatility in financial markets” and the need to monitor potential spillovers.

The Shanghai Composite index has lost about 40 percent since reaching a three-year high in June. Zhou used the word “burst” three times in his explanation of what is going on with the stock market, according to a Japanese finance ministry official.

The Chinese delegation said they were trying to shift to a different growth model with as little disruption as possible, according to an international official participating in the talks. They said were trying to reduce indebtedness and are planning measures that will regulate swings in the stock market.

“China is definitely trying to play a constructive role,” Canadian Finance Minister Joe Oliver said in an interview. “It is the second-largest economy in the world and so when it slows down it has global implications. That is I think what we are dealing with.”

Stability Forecast

China’s surprise decision to revalue the yuan as it tried to contain the stock market turmoil caused the currency to drop the most in 21 years last month, triggering exchange-rate declines elsewhere in the emerging world on concern a weaker yuan will hurt countries exporting to China.

The Chinese delegation said the currency move wasn’t an attempt to grab exports from their international competitors and that explanation was accepted by the other nations, according to the international official.

The Chinese asked for specific references to their problems to be left out of the final communique, a euro-area aide said.

“No one can predict exactly on the market volatility, but I’m confident that the renminbi exchange rate will be more or less stable around the equilibrium level,” Yi Gang, China’s deputy central bank governor, said in an interview as he headed into Friday’s session. “The Chinese economy’s fundamentals are fine.”

U.S. Treasury Secretary Jacob J. Lew told Chinese Finance Minister Lou Jiwei in Ankara on Friday that it’s important for China to signal that it will allow market pressures to drive the yuan up as well as down. China should avoid persistent exchange- rate misalignments and refrain from competitive devaluation, Lew said, according to a Treasury statement.

Fed Hikes

China’s slowdown comes as the Federal Reserve is considering raising U.S. interest rates for the first time in nine years.

Vice Chairman Stanley Fischer explained the Fed’s very gradual, cautious approach to tightening monetary policy in a presentation to delegates, according to an official with knowledge of the discussions. Fischer

The draft statement seen by Bloomberg News before the talks began said that in line with the improving outlook, “monetary policy tightening is more likely in some advanced economies, which may remain one of the main sources of uncertainty in financial markets.”

Some delegates from emerging markets said at the meeting that the Fed should get on with raising rates to end uncertainty, according to an official who was present.

International Monetary Fund Managing Director Christine Lagarde (first row second right) gestures as finance ministers and central bank governor gather for a group photo during the second day of the G20 meeting in Ankara on Saturday. (AFP photo)

Global finance chiefs persuaded China to join a foreign-exchange peace pact as they sought to contain the tensions unleashed by the country’s stock-market rout and its August devaluation.

Finance ministers and central bankers from the Group of 20 nations are drafting a communique that will include a commitment to avoid “competitive devaluations,” a senior official from the US Treasury told reporters in Ankara Saturday. That’s the first time the G20 has used such language since 2013.

China is on the defensive as its slowing economy and market turbulence send shock waves through emerging markets just as the United States is preparing to raise interest rates. With the MSCI emerging market index down 18% so far this year, an earlier version of the statement prepared before the meeting cited “recent volatility in financial markets” and the need to monitor potential spillovers.

Zhou Xiaochuan, governor of The People’s Bank of China, told his counterparts at the summit that China has had to deal with the bursting of a stock market bubble. Photo: EPA

The Chinese delegation’s presentation was the main focus of the two-day meeting, Spanish Economy Minister Luis de Guindos said.

“They explained that the Chinese economy is in a period of transition,” Guindos told reporters. “They are heading to a new normal situation for them, which will be growth around 6 or 7%.”

China’s surprise decision to revalue the yuan as it tried to contain the stock market turmoil caused the currency to drop the most in 21 years last month, triggering exchange-rate declines elsewhere in the emerging world on concern that a weaker yuan will hurt countries exporting to China.

‘It Wasn’t Enough’

Zhou Xiaochuan, governor of China’s central bank, told his counterparts that his country had had to deal with the bursting of a stock market bubble as he described policy makers’ plans, according to Japanese Finance Minister Taro Aso.

“It wasn’t enough,” Aso told reporters. “They may have tried to be constructive, but they weren’t detailed enough.”

The Chinese delegation said they were trying to limit disruption as the economy shifts to a different growth model, according to an international official participating in the talks. They said they are trying to reduce indebtedness and planning measures that will regulate swings in the stock market.

The Shanghai Composite index has lost about 40% since reaching a three-year high in June.

“China is definitely trying to play a constructive role,” Canadian Finance Minister Joe Oliver said in an interview. “It is the second-largest economy in the world and so when it slows down it has global implications. That is I think what we are dealing with.”

Stability Forecast

The Chinese delegation said the currency move wasn’t an attempt to grab exports from their international competitors and that explanation was accepted by the other nations, according to the international official.

“No one can predict exactly on the market volatility, but I’m confident that the renminbi exchange rate will be more or less stable around the equilibrium level,” Yi Gang, China’s deputy central bank governor, said in an interview as he headed into Friday’s session. “The Chinese economy’s fundamentals are fine.”

The Chinese asked for specific references to their problems to be left out of the final communique, a euro-area aide said.

US Treasury Secretary Jacob J. Lew told Chinese Finance Minister Lou Jiwei in Ankara on Friday that it’s important for China to signal that it will allow market pressures to drive the yuan up as well as down. China should avoid persistent exchange-rate misalignments and refrain from competitive devaluation, Lew said, according to a Treasury statement.

Fed Hikes

China’s slowdown comes as the Federal Reserve is considering raising US interest rates for the first time in nine years. Vice Chairman Stanley Fischer explained the arguments for and against an early increase in US interest rates, de Guindos said.

The draft statement seen by Bloomberg News before the talks began said that in line with the improving outlook, “monetary policy tightening is more likely in some advanced economies, which may remain one of the main sources of uncertainty in financial markets.”

Some delegates from emerging markets said at the meeting that the Fed should get on with raising rates to end uncertainty, according to an official who was present.